A HISTORY OF CANADIAN WEALTHCHAPTER XI
FIRST PERIOD OF RAILWAY PROMOTERS
Within a few years after the chartering of some of these initial railway projects, their promoters had transferred to themselves from the treasury of the Government of the Province of Canada, then composed of Ontario and Quebec, the aggregate of nearly $22,000,000.
Appropriated first in the form of loans, almost the whole of this sum was either soon or gradually converted into the equivalent of a gift. Nor, judging by current standards, was it a modest gift. Compared to the extremely slim population of those parts of Canada at the time, and the great purchasing power of given amounts as contrasted with the far lower power of today, that $22,000,000 represented a sum perhaps equal to ten times that amount in these more enhanced years. But, as we shall see, this was by no means the only cash bounty. Subsidies totalling nearly $10,000,000 more were, in that infant age of the railways, obtained from counties and municipalities in what are now the Provinces of Ontario and Quebec.
The prodigality of these money advances can be somewhat adequately estimated when the scanty population and the paucity of developed resources of the Canada of that time are recalled. These subsidies, moreover, were merely the cash largess. Many of the railway charters specifically allowed the free appropriation of timber, stone and other necessary construction material from the public domain. Besides the cash subsidies, the railway promoters contrived to get from municipalities extensive gifts of city land for approaches, terminals and stations, all of which land became of ultimate enormous value.
In every direction, by force of law and often out of law, many of the politicians and their allies and associates were grasping economic power, which is to say, means for accumulating wealth.
Railroads Were His Politics
Such contests, frequently carried on by competing individuals or groups, engendered bargaining or bitter animosities and enmities which were transferred to the open political arena, often operating as the secret or open cause in the overthrow of this or that Ministry and other such political changes. Occasionally, some politician more candid than his colleagues, divulged the secret as, for instance, Sir Allan N. MacNab did when he made the blunt declaration, famous in the politics of the period, that railroads were his politics.
Admixed with economic aims was the discussion of certain issues affecting religious, racial and other controversies, but these, too, had their underlying strata of definite economic aspects.
To invest the past with the color of legitimacy is a marked characteristic of conventional history. Here, say the apologists, was a vast country, the resources of which had to be developed. The public collectively were not ready to undertake the construction of great railway systems, and therefore private capitalist enterprise had to step forward and consummate this indispensable work. Responding to this legitimate enterprise ; the successive Canadian governments as legitimately presented companies of capitalists with the necessary laws and means.
This sounds plausible, but unfortunately the facts at no stage coincide.
Sir Francis Hincks Mission
To begin with, there is the fact that among the chief beneficiaries of the charters and subsidies were members of Parliament or of the Government. Then presently came a notable Grand Trunk Railway incident involving Sir Francis Hincks.
An Act passed in 1850 contained a conditional provision that the Grand Trunk Railway could be constructed as a public work by the Canadian Government joining with the municipalities. This law was, in itself, a clear recognition that private capitalist enterprise was not necessary. Why were the provisions never carried out ? Why did Sir Francis Hincks, who, in his capacity of Inspector-General or Finance Minister, was sent as Canadian envoy to England to continue negotiations with the British Government, not insist upon the execution of this particular clause ? Why was it that the contract for building the Grand Trunk was turned over to the English contracting firm of Peto, Brassey, Betts and Jackson ?
Hincks change of front was, wrote Thomas C. Keefer, perhaps the most eminent Canadian civil engineer of his time, in consequence of propositions made to him in England by English contractors of great wealth and influence. . . . It was also believed that a powerful though indirect influence wielded by those contractors, materially contributed to the adverse position assumed by the new Colonial Minister on a question to which the Imperial Government had, by his predecessor, been so far committed. The course of the Canadian envoy can only be defended on the assumption that a refusal was inevitable, and that a proper appreciation led him to appreciate it.
Contractors Set Aside $250,000 of Stock for Hincks
No more unfavorable impression would probably have remained had not his name subsequently appeared as the proposed recipient of a douceur [a present or an intended bribe] from the contractors in the shape of £50,000 [$250,000] of paid up stock in the capital stock of the Company which, however, he repudiated when it was announced.1
But this abbreviated account is an incomplete and meager description of the full charges against Hincks. It omits a number of important particulars, and does not clarify the question of precisely why it was that those English contractors, the most thrifty and methodical of men in business matters, should have been so uncommonly generous in thus setting aside $250,000 of Grand Trunk stock in Hincks name.
That this amount, or to be exact, £50,400 sterling in shares, was credited to Hincks, is an incontestable fact ; and it was this very fact, leaking out in 1854, that caused considerable discussion. It pressed seriously for explanation and investigation, more especially as there were eight other specific charges that in various ways Hincks, and, in some cases, certain of his colleagues, had taken advantage of their high positions to speculate in land, the price of which was increased by canal or railway projects and legislation, or to speculate in railway stocks or municipal railway bonds.
To attempt to suppress these charges by a mere denial, or by ignoring them, was an impossibility ; they were too grave, and the popular and the political talk was too great. Therefore the course of an investigating committee was decided upon. This committee was chosen by the Legislative Council or upper House, nearly all, if not all, of the members of which had themselves benefited by similar speculations or had similar connections and interests. The Speaker of that body was John Ross, the head of the Grand Trunk Railway of Canada. These facts were not favorably commented upon.
The fact was proved by the evidence produced before this committee that 1,008 shares of Grand Trunk stock, valued at £50,400 sterling, had, on April 25, 1853, been allotted to Hincks, and that a few days later, on May 3, 1853, the sum of £10,080 was paid in cash as part payment on that stock, and a receipt was made out in Hincks name and in his favor. There was also another £50,400 worth of Grand Trunk shares credited similarly to Alexander Mackenzie Ross. But what anonymous benefactor was it that paid the cash, amounting to one-twentieth of the price of the stock, for Hincks presumable benefit ?
Sources of the Allotted Stock
That was a delicate and difficult point to determine, and it was some time before it was fully solved. John Ross testified that he didnt know who paid the cash ; it was popularly remarked that as the head of the Grand Trunk Railway, Ross innocence of knowledge of certain facts was, indeed, extraordinary, doubly so considering that Ross, in 1852, had, as president of that railway, been sent to England to superintend the completion of the contract for the construction of the Grand Trunk. A.T. Galt, Grand Trunk promoter, also professed the densest ignorance as to this particular transaction ; he testified that he knew nothing of who made the original allotment of stock.
Light, however, was obtained from George Carr Glyn and Thomas Baring, English bankers and Grand Trunk directors in London.
In response to written questions, Glyn wrote to the Legislative Council Committee that the allotment of stock to Hincks and to Ross was made by the Grand Trunk directors upon the representations of Sir S.M. Peto, of the contracting firm of Peto, Brassey, Betts and Jackson. Barings written replies to the committees queries corroborated this. It was Peto, Baring informed the Committee, who had paid the first deposit on the shares, and it was likewise Peto who had caused the receipts to be made out in the names of Hincks and of Ross.2 According to Barings view, Hincks and Ross had no personal interest.
Hincks Accused of Bargaining
Called as a principal witness, George Brown, a member of Parliament, put his answers in the form of a definite charge that Hincks had made a bargain with the English contractors. By this bargain, Brown alleged, the contractors were to get the bulk of the Grand Trunk stock and bonds, and exorbitant stated sums for the construction of the railway. Brown further charged that by reason of Hincks influence, the contractors obtained a charter for constructing the Quebec and Trois Pistoles Railway a Grand Trunk branch line ; that Hincks was also of service to those contractors in the Quebec and Richmond Railway contract, and that Hincks had given them his great influence in promoting through Parliament a Bill for the amalgamation of these and other railways.
Furthermore, Brown charged that in return for that £50,400 of Grand Trunk stock, Hincks had used his official influence to get the Grand Trunk contract for the firm of Peto, Brassey, Betts and Jackson. It was believed, Brown charged, that in return they had placed the £50,400 sterling of stock in his name, and had paid £10,080 sterling on account to Hincks credit, and that before further installments became payable, the fact of Hincks owning so large an amount of stock inopportunely became public, and caused the sudden abandonment of the plan.
The general belief was, Brown stated, that Hincks must have known of the transaction ; that as chief promoter and a director of the Grand Trunk he must have consulted the allotment list, and could not have been ignorant of the holdings of stock credited to him. There was a belief in other quarters, Brown averred, that the stock was assigned to Hincks and the deposit paid for him so as to enable him to sell it to others, and thus pocket the premium or profit expected from the sale of his shares.
Committee Exonerates Hincks
Despite the plea that it was the practice to admit such testimony as circumstantial and relevant, the majority of the committee by vote would not accept Browns evidence. Their refusal was based upon the ground that only matters within his personal knowledge would be accepted. They, however, allowed his testimony to be published.
Hincks own explanation was that the Grand Trunk shares credited to Ross and himself were merely held in trust for allotment in Canada to parties who might be desirous to take an interest in the Company. If this were so, it presented the sight of a Prime Minister acting as an intermediary for the disposition of stock the market price of which depended much upon legislation that he himself caused to be enacted.
It was obviously an incongruous explanation, but it was adopted by the Legislative Council Committee, which went even further and reported that the stock had been put in Hincks name without his knowledge, and that he had no personal interest in it. That the report of this considerate committee was of a whitewashing character was freely charged ; certainly its extenuating treatment of the other charges brought against Hincks seemed to impart much substance to this widely-expressed view . Frankly cynical that report was, too, excusing speculations by Ministers with the off-hand remark that everyone else who could do so was doing likewise. No evidence of corruption could be found so this committee reported.3
Hincks Friends Get Contract
So the English contracting firm of Peto, Brassey, Betts and Jackson got the contract. Already its members were enriched by their operations in the construction of many railroads in England and elsewhere in Europe. If any curious investigator seeks to know the methods by which the railroads in England were built, he has only to consult the graphic account that Smiles gives in his Life of George Stevenson. There the informative details will be found of how these lines were scamped by improper ballasting and other methods of inefficient construction by which contractors reaped the largest possible profit for the cheapest, hastiest and poorest kind of work. These methods were transferred to Canada.
For their work of construction the English Grand Trunk contractors agreed to take two-thirds of their pay in stocks and bonds a fact which subsequently led to the ruin of all of them except Brassey, who shrewdly edged out of the mess in time.
The all-potent banking house of Rothschilds, in reality, however, owned an eighth interest in the capital of the Grand Trunk. The Canadian Governments financial agents of the Grand Trunk in England were the big banking houses of Baring Brothers and Company, and Glyn, Mills and Company. Less than six men or concerns in England held most of the Grand Trunks stock.
The Grand Trunks Exalted Directors
Of the nineteen Grand Trunk directors, nine were nominated by the Canadian Government for the purpose of safeguarding the public interest. Of these nine, four were Cabinet Ministers, and eight of the nine were really nominees of the English contractors. A number of the government directors were stockholders in this project or other projects at the same time. Whether they were able to reconcile these conflicting interests, and to what extent and in just what manner they responded to the purposes of their appointment, will be seen later in this chapter.
Very impressive, therefore, was the directorate of the Grand Trunk Railway Company. The list comprised not a few of the most powerful and what were considered the most illustrious Canadian public men.
There was John Ross, Member and Speaker of the Legislative Council, Solicitor-General of Upper Canada, and stockholder in the Grand Trunk Railway of Canada ; he was appointed president of the Grand Trunk through the allpowerful influence of the English contractors controlling the stock, and he remained president until 1862. There was Francis Hincks, promoter and incorporater, as we have seen, of several railroads, and a stockholder in the Grand Trunk. A merchant and bank manager in early life, Hincks went to Parliament, pushed the Great Western, the Grand Trunk and other railway projects and subsidies, became Inspector-General (a position analagous to Finance Minister), and then became Prime Minister of Canada, and was knighted.
Another of the Grand Trunk directors was E.P. Tache : he had been Cabinet Minister in 1848, and thereafter was Receiver-General, Speaker of the Legislative Council, and then head of the Government ; a Sir, he too, became, in 1858.
A Roll of Honor
In addition, there was James Morris, Member of the Legislative Council and Postmaster-General ; Malcolm Cameron, President of the Executive Council ; R.E. Caron, Speaker of the Legislative Council ; Peter McGill, Member of the Legislative Council, the Executive Council, and for decades President of the Bank of Montreal ; he, too, was a Grand Trunk stockholder. Among other notabilities was George E. Cartier, Member of Parliament for Montreal, and later Premier of Canada, the Grand Trunks chief lawyer. Such were some of the Grand Trunks directors as listed by the Companys prospectus.
All, or nearly all of these men, as we have previously noted, were among the incorporated proprietaries of various different or interconnected railway or other private companies. For instance, Hincks, Morris and other Government members were, as an investigation in 1855 showed, partners in a syndicate organized to buy from the Government the Domain Farm on the Seignory of Lauzon. They calculated that the completion of the Grand Trunk Railway would increase the propertys value. The transaction was duly consummated. Hincks admitted the syndicates operations, but justified them on the ground that he had not used his official position unduly and had not benefited financially. The same disclosures showed that Malcolm Cameron speculated in Grand Trunk stock.4
Get $15,557,500 of Public Cash
The Grand Trunk Railway came into existence with the impressive capital of £9,500,000, increased a little later to £12,900,000 sterling. The Canadian Parliament was extremely generous. Of this amount it guaranteed £3,111,500 sterling, the several sums of which were granted on different occasions.
When, in 1855, one of these sums of (£500,000 sterling aid to the Grand Trunk Railway was being voted through the Legislative Assembly of the Province of Canada, protests were made in that body against votes being cast by Galt and Holton on the ground that they were extensive contractors of the Grand Trunk or its amalgamated lines, and a similar protest was made against the vote of Angus Morrison on the ground of his being a stockholder. Morrison admitted that he had held stock, but denied any present pecuniary interest. Motions to disqualify Galt, Holton and Morrison from voting were defeated.5 Hincks, Ross, MacNab, Cayley, Cartier and other railroad promoters all joined in voting down the motion.6
In consideration of getting the contract on their own terms, the contracting concern of Peto, Brassey, Betts and Jackson had assumed the risk of disposing of the stock and bonds. The prospectus issued by the Company and framed by Hincks, Ross and Galt, was a glowing production. To investors it held out the certainty of dividends of 11½ per cent. But how such profits could be extracted from a thinly-populated country, with small developed resources, and especially from a country traversed by numerous competitive waterways and canals, was hard to see. Even the English contractors, it was said, were misled by this roseate prospectus.
Manipulating Grand Trunk Stock
After having been manipulated upward, the market price of Grand Trunk stocks and bonds began to decline and continued so. It was freely asserted that this came about largely because of the extravagance, blundering and inefficiency that at every step marked the construction of the Grand Trunk railway.
The staff of officials sent over from England were paid princely salaries ; the chief of these received an annual salary of $25,000, which, together with his expenses, brought the whole paid to this official up to $43,000 a year considered a colossal sum at that period. Other official salaries ranged in lavish proportion.
The St. Lawrence and Atlantic Railway, controlled by Sir A.T. Galt and others, was unloaded upon the Grand Trunk Railway Company at cost, notwithstanding the known fact that its stock had been sold at 50 per cent. discount. After getting it at this extortionate price, which had been paid upon the representation that it was complete, the Grand Trunk Railway Company had to spend another $1,000,000 to put that line in some fair degree of shape between Montreal and Portland.7
One of the charges of corruption brought against Sir Francis Hincks was that as Cabinet Minister he had obtained secret advance information of this amalgamation, and had speculated in the stock. That he did get a telegram from A.T. Galt and did buy stock was admitted, as likewise the fact that the market value of the stock went up after the amalgamation. But the generous Legislative Council Committee reporting on this and other charges, smoothed over the transaction on the ground that Hincks did not buy the stock until several weeks after the amalgamation.8
Scamping the Construction Work
When it became evident that Grand Trunk stocks and bonds were depreciating, the agents and sub-contractors of Peto, Brassey, Betts and Jackson scamped construction work whenever they could ; most railroad construction was paid for not by the work but by the mile. It was Brassey, it may here be remarked, who introduced the sub-contracting system in Canada. Provisions of the contracts were either not enforced or were but meagerly complied with. East of Toronto the section of the work carried on by the English contractors the rails were of poor quality, and the ballasting and the placing of sleepers were so flimsily, badly done as to lead later to a destruction of rolling stock and property . . . which is unprecedented in the history of railways.9 The entire scheme of construction was grossly and manifestly inefficient. In level country the railroad was not raised so as to keep out snow and water. The gradients in hilly regions were badly arranged and flagrantly defective. Everywhere the contractors kept the road as near the surface as the contract permitted, no matter how much it might be smothered in winter and flooded in spring, or how frequent and severe the gradients became. Irrespective of railroad considerations, stations were placed where land was cheapest ; this was done to obtain political support, or benefit from a speculation in building lots.10
Brassey Holds on to His Fortune
The firm of Peto, Brassey, Betts and Jackson later went bankrupt, but, doubtless foreseeing how affairs were going, Brassey had discreetly withdrawn. He left an enormous fortune said to have been £7,000,000 or nearly $35,000,000, which his eldest son, Lord Brassey, later Governor of Victoria, Australia, largely inherited. Most of this wealth came from the profits of railway construction work ; for it was Brassey, as we have said, who developed that vicious system of subcontracting which introduced the sweatshop evils, so to speak, on construction work. Strikes were numerous. The construction camps were in such a condition that cholera found its easy prey among the laborers ; in one case in particular, 60 in a gang of 200 men were down with cholera at the same time ; it is needless to say that many died.11
As for the construction of the western part of the Grand Trunk from Toronto to Sarnia, the contractors were mainly such Parliament members as A.T. Galt, L.H. Holton, D.L. Macpherson leagued with Casimir Gzowski (later a Sir) in the firm of Gzowski and Company.12 The list of stockholders of the Toronto and Guelph Railway Company, controlled by the Grand Trunk Railway Company, showed that Gzowski and Company were the largest private stockholders, owning 10,398 shares.13
Samuel Thompson, one of Torontos prominent publishers and municipal officials at the time, and secretary of the Toronto and Guelph Railway Company, refers in his Reminiscences to a certain contract for laying out the Esplanade for the Toronto terminus of the Grand Trunk. Gzowski and Company succeeded in prevailing upon the officials to supersede the first contract that they had by a second. By this second contract, Thompson relates, the city lost about $50,000, and Gzowski and Company benefited in one item alone to the extent of at least $16,000, that sum representing the difference between the rates of wages in 1853 and 1855 presumably by the contractors retaining the old scale of wages.14 But such profits were nothing compared to the immense potential value of the Esplanade property turned over by the city of Toronto to the Grand Trunk and the Northern Railway.
It was at this identical period that, as we shall see, Mayor John G. Bowes of Toronto was a partner with Hincks, the Prime Minister of Canada, in a corrupt bargain in the private purchase and sale of Toronto City bonds issued as aid to the Northern Railway Company.
As to the circumstances of this particular transaction full details are set forth later in this chapter.
Did Governor-General Elgin Take Away £80,000 ?
Writing cursorily and with a scantiness of detail as to conditions in 1853, Thompson, in his volume, has a curious passage to this effect : The Ministry then in power was known as the Hincks-Tache Government. . . . People remembered William Lyon Mackenzies prophecy who said that he feared that Francis Hincks could not be trusted to resist temptation. When Lord Elgin [Governor-General of Canada] went to England, it was whispered that his lordship had paid off £80,000 of mortgages on his Scottish estates, out of the proceeds of speculations which he had shared with his clever minister. The St. Lawrence and Atlantic transaction, the £50,000 Grand Trunk stock placed in his [Hincks] credit as he asserted, without his consent, and the Bowes transaction, gave color to many stories circulated to his [Hincks] prejudice. And when he [Hincks] went to England, and received the governorship of Barbadoes, many people believed it was the price of his private service to the Earl of Elgin.15
If there was any substance in these charges, the available official documents do not contain any support of them, although much went on that never was disclosed in official reports. Hincks made a general denial.
Members of Parliament Entertained
At the same time, railway contractors, practical men versed in all of the arts of shoddy construction and bribery, came over from the United States to seize their share of the harvest.
One bold operator, Keefer wrote, organized a system which virtually made him ruler of the province [of Canada] for several years. In person or by agents he kept open house, where the choicest brands of champagne and cigars were free to all the peoples representatives, from the town councillor to the cabinet minister ; and it was the boast of one of these agents that when the speakers bell rang for a division more members of Parliament were to be found in his apartments than in the library or any other single resort. By extensive operations he held the prosperity of so many places, as well as the success of so many schemes and individuals, in his grasp, that he exercised a quasi-legitimate influence over many who could not be directly seduced. Companies about to build a railway or get a municipal loan or other grants were led to believe that if he were the contractor, he could get the sanction of the government to any extent.
Keefer further wrote that before the English contractors for the Grand Trunk Railway could proceed with their schemes in the Canadian Parliament they were compelled to give this lobbyist-contractor a one-third interest in their contract. He, too, foreseeing Grand Trunk troubles, compromised by exchanging his one-third interest for £12,000 sterling.
When an English contractor was confidently about to swoop upon the contract for the Toronto and Hamilton Railway, up turned this same irrepressible individual ; he had to be bought off with £10,000 sterling. But, Keefer narrates, he had to disgorge later when seeking the cooperation of this same English contractor for the celebrated but abortive Southern Railway scheme.16
The Toronto Northern Railway contract had been turned over to a band of American contractors. As payment they were to receive the Companys bonds and stocks and government guarantee debentures. But before they could get any part of the government debentures, the contractors were required, by the terms of the grant, to complete one-half of the first 75 miles. When their cash was exhausted, they asked the Government for an advance of money, despite their not having completed the necessary work.
Fixing Government Officials
But, so Keefer describes the incident ; the Government found the road so ` scamped under the American engineer (who subsequently openly became a partner with the contractors), that the Commissioner of Public Works refused to recommend the issue of provincial bonds.
Here was a fix ! But the contractors sent for their American ` brother who, for a brokerage of $100,000 of the first mortgage bonds of the Company, undertook to obtain the guarantee. He went to his colleague in the government ; the Commissioner of Public Works was shunted out of office on a suddenly-raised issue (which was immediately thereafter dropped), and just one week afterward, the guarantee bonds were forthcoming.
In connection with this incident it is worthy of remark, that a member of the Government shortly afterward paid away nearly £10,000 of the first mortgage bonds of the same company in the purchase of real estate.17
The Great Western Railway sought legislation to lay a double track from Hamilton to London. Keefer says that the Company was gravely assured that the Government was powerless to give the Company the right ; the American contractor in question, the Company was told, had too much influence in Parliament.
The contractor was accordingly seen. What was his price ? It was the contract for the double tracking. The double-track scheme was later dispensed with by the Company as unnecessary, but other privileges were sought and secured. Among other favors obtained by the legislation thus bartered for, was the power to disregard that provision of the railway Act which requires trains to stop before crossing the bridge over the Desjardins Canal [near Hamilton]. In less than two years thereafter, a train which did not stop plunged through this very bridge, and among the first recovered of the sixty victims to that `accident was the dead body of the great contractor himself.18
The particular contractor thus referred to was Samuel Zimmerman.
It is in such authentic accounts that we get real glimpses of some of the methods used at the time ; and, as we shall see, we get still other definitely established facts of other methods used by railway promoters.
Rids Itself of the Government Lien
We shall now revert to the Grand Trunk Railway.
Pleading that it was now in a sadly embarrassed condition, the directors of that railway, placing themselves in the legal position of paupers, applied to the Canadian Parliament for relief.
It promptly came, in 1857, although not without encountering great opposition from the Great Western Railway forces in Parliament, led by Sir Allan N. MacNab and also antagonism from other railway interests. A motion for an inquiry into Grand Trunk affairs was voted down. It was during this debate that the Hon. J. Cauchon, Commissioner of the Crown Lands Office and Cabinet Minister, curtly informed Premier Tache that he would not vote for the Grand Trunk Aid Bill unless he (Cauchon) was given assurance that a grant of 1,500,000 acres would be made to the North Shore Railway Company ; Cauchon himself read his letters on the subject in Parliament. Although Cauchon did not then succeed in obtaining the land grant, the North Shore Railway Company later secured an even larger land grant, and Cauchon (as already noted), became the Companys president.
An accommodating law was passed (20 Vic. Cap. XI.) by which the Canadian Parliament declared that it would forego all interest in its claims against the Grand Trunk until the earnings and profits of the Company, comprising those of the St. Lawrence and Atlantic Railway Company, should be sufficient to pay all charges including :
I. All expenses of managing, working and maintaining the lines of the Company.
2. The rent and interest of the St. Lawrence and Atlantic Railway (acquired by the Grand Trunk), and all interest on the bonds of the Company, exclusive of those held by the Province of Canada.
3. A dividend of six per cent. on the paid up share capital of the Company, in each year in which the surplus earnings should admit of same. At the same time, the government directors of the Grand Trunk were dispensed with.
Parliament Too Liberal
Further legislation favorable to the Grand Trunk Railway was enacted in the following years. On June 9, 1862, a law was passed (25 Vic. Cap. 50.) the purport of which again allowed the postponing the payment of the Government loans, and authorized the Company to issue £500,000 sterling of equipment bonds. Five years later another law was enacted authorizing the Company to issue another £500,000 sterling of equipment bonds to take priority over all other charges, except the bonds allowed in 1862. With all the outstanding issues of bonds and other what-nots, the Government now stood a slim enough chance of ever recovering its loans, and much of them it never did get back. In properly subdued yet indignant language, Swinyard, president of the Great Western Railway, sourly complained of the too liberal spirit which Parliament had shown towards the Grand Trunk Railway.19
In that era the most bitter competition for privileges, powers, subsidies and traffic prevailed between various of the railroad companies. Each had their sturdy representatives in Parliament ; and in the course of this warfare each sought hard to damage, if not cripple the others. If one company was unduly favored with Government grants, loans or other laws or donations more than the others, acid resentment resulted. The same was true with regard to Provincial legislation and municipal by-laws ; competing companies used every possible influence to prevent one another from securing bonuses or other grants of public aid.
The two most aggressive foes were the Great Western Railway Company and the Grand Trunk Railway Company of Canada the one with a line with branches from Suspension Bridge to Windsor, and the road of the other running from Quebec and Montreal to Toronto and other places and with projected lines paralleling certain of the Great Westerns territory in Ontario. This sharp competition, it may be said here, continued for many years more until the Grand Trunk absorbed the Great Western.
The Great Westerns Diversion of Funds
From November, 1852, to June, 1855, the Canadian Government made loans totaling £770,000 to the Great Western Railway Company. The Company, confidentially wrote Finance Minister John Rose to the Governor-in-Council, February 24, 1868, was represented in Parliament by the late Sir Allan MacNab for many years its President, and it was he who, in 1852, moved the Resolution in the Railway Committee set forth in the Companys petition a resolution aiming to give the Great Western a monopoly in the Ontario Peninsula, but which bill failed to pass,20 for the very obvious reason that at that time Grand Trunk influences were dominant.
Finance Minister Rose made the accusation that the accounts of the Great Western Railway showed that its promoters appropriated a total of about $1,225,000 of the funds in doing what the Company was never chartered to do and what it had no legal right to do in constructing a railroad in the United States the Detroit and Milwaukee Railway. Rose further asserted that fully $4,000,000 of its capital was used thus, and also absorbed in constructing other lines and in steamship investments.21
Here the fact may be interjected that so far as cash went, the Commercial Bank of Canada had advanced £250,000 to the Detroit and Milwaukee Railway Company. With accumulated interest this claim amounted to considerably more by 1863. The bank, however, could get nothing, inasmuch as the Great Western had foreclosed two mortgages in 1860 against the Detroit and Milwaukee Railway, and a lawsuit availed nothing. C.J. Brydges was one of the Canadian directors of the Detroit and Milwaukee line ; the two other Canadian directors were those politicians James Ferrier and William Molson. Brydges was appointed receiver, and the road was sold in 1860 to the Great Western for the nominal sum of $1,000,000. Down, therefore, went the Commercial Bank of Canada in resounding ruin ; it was one of the largest banks in Canada, and its collapse made a great sensation.
A Series of Tragic Accidents
Although millions of dollars were thus advanced from the public treasury to the Great Western Railway, that line was so inefficiently constructed that disastrous wrecks, causing considerable loss of life, were frequent.
At Lobo, on June 2, 1854, six passengers were killed, and 14 injured ; at Thorold, on July 16, 1854, seven passengers were killed and 14 injured ; a terrible wreck at Baptiste Creek, on October 27, 1854, caused the death of 57 persons and the injury or mutilation of 46. These are a few of the many accidents in that single year of 1854, calling forth the appointment of an investigating Legislative Commission.
We find, the Commission stated in part, that at the opening of the road, the embankments and cuttings were in a dangerous state ; that the ties or sleepers were without the stay or support of gravel on the surface ; the road crossings and cattle grades were unfinished. The trestle works in some cases substituted for embankments were notoriously insecure, and in fact neither grading nor superstructure were in a fit state to hazard the prosecution of traffic in the face of the contingencies of the coming winter and spring in this climate and in this country.22
The Commission incorporated evidence proving that Managing-Director Brydges of the Great Western Railway had received full warning from a noted civil engineer that the road was in a too dangerous state to open it for traffic, but that he disregarded the warning. No railway official was punished for this continuous loss of life, and indeed it was only three years later that the appalling disaster (which we have already described), happened on the Great Westerns system at Desjardins Canal, near Hamilton.
Extracting Subsidies from the Towns
By 1858, the railway contractors had completed, or professed to have completed, 1,483 miles of railway in Ontario and Quebec. Funds poured into their laps. The most amazing audacity was shown in securing loans from municipalities. From the town of Port Hope with about only 3,000 population, a loan of $740,000 was squeezed. The town of Niagara with but 2,500 population, was influenced to give $280,000. Brockville, with a bare 4,000 population, yielded $400,000, and Cobourg, with the same number of inhabitants, $500,000. The City of Ottawa, with less than 10,000 population, presented $200,000, and the City of London, having no larger population, $375,400. Brantford, of not more than 6,000 population, was persuaded into voting a $500,000 loan.23 These are but a few examples of the manner in which small and poor municipalities were depleted of funds, and corrupted or compelled to mortgage future generations for the benefit of railway contractors and owners, who exacted tribute with the most inordinate and presumptuous insistence.24 Keefer tells of one village allowed by the Governor-in-Council (the permission of which body was required under the Railway Loan Act), to borrow $300 per head of the population.
Northern Railway Subsidy Jobbery
As for subsidies procured from the larger municipalities, the Northern Railway scandal, revolving around the issue of Toronto City bonds in aid of that project, revealed the methods often used to get municipal subsidies.
In 1850 the City of Toronto, or rather its officials, voted a gift of £25,000, a valuable site for a station, and the right of way, to aid this enterprise. The next year the City of Toronto was prevailed upon to loan £35,000 more to the Company, under conditions making it virtually a gift. One of these conditions was that certain parts of the road had to be completed before these sums were available. Despite the fact that they did not comply with the required conditions, the contractors, in the very act of scamping, had the assurance to ask for the full subsidy. Mayor John G. Bowes had been a director of this same railway company.
An illegal by-law was thereupon passed to hand over £60,000 to the Railway Company. Advised by eminent counsel that this by-law was in fact an illegality, the contractors and their confederates quickly hit upon a plan of circumventing it. A Bill was hurried through Parliament. This Bill was apparently innocent and modest-looking ; its sole ostensible object was to allow Toronto to issue a loan of £100,000 of bonds for the purpose of consolidating the Citys debt. But it was in the fifth clause of the Bill that the little joker cunningly lay. Notwithstanding the fact that the subsidy railway debenture bonds voted by the Citys officials did not mature for twenty years, this clause compelled Toronto to pay at once to the contractors the debenture bonds at their face value. Prime Minister Hincks rushed this Bill in all of its stages through Parliament in a few days, and it became law. None or few of the legislators knew that a few weeks previously Hincks and Bowes had personally bought those very bonds at four-fifths their face value.
Soon revelations were forthcoming that Bowes and Hincks had been in secret partnership, and that they had bought from the Northern Railway contractors, at a large discount, a batch of the identical bonds issued by Toronto to aid that Company. By certain bank manipulations, it appeared, they did this without having to spend a cent of their own money.
Hincks and Mayor Bowes Share Profits
In the Court of Chancery, in 1854, Bowes admitted the transaction, and likewise did Hincks. Each of them, it was disclosed, made a profit of £4,115.
Even the Legislative Council Committee which, in 1855, presented Hincks with so white a bill of moral and political health, admitted that Hincks partnership with Bowes was fully proved, but asserted that Hincks had not used his influence as a Cabinet Minister to get the money for buying the bonds. The Judicial Committee of the Privy Council, however, denounced the transaction as a corrupt bargain, and Bowes was condemned to pay a judgment of nearly £5,000. Samuel Thompson, who was then chairman of the finance committee of the Toronto Municipal Council, insisted in his Reminiscences, published thirty years ago, that Hincks had used his official powers for his private profit, and that deception had been practiced on Torontos Finance Committee and Municipal Council.25
No doubt it was to this incident that Keefer referred in his account (already cited in this chapter), of what he described as the Toronto Northern Railway contract. That, writing a few years after the transaction, Keefer should have made certain definite charges, at a time when most of the people concerned were alive, and that these charges, published in book form, should have called forth neither denial nor libel suit, certainly invests them with weight, corroborated as they were by sworn admissions as to other bargaining.
Keefers account supplies the finishing touches. He wrote, as we have seen, that the contractors scamped the work ; that the Commissioner of Public Works, because of that notorious fact, refused to sanction giving them subsidy bonds ; that the contractors offered a certain contract-lobbyist a bribe of $100,000 of first-mortgage Northern Railway bonds if he would arrange matters with the Government to hand over the subsidy bonds to them ; that the lobbyist immediately got busy and in contact with a certain high Government official ; that on a trumped-up issue or pretext the Commissioner of Public Works was summarily dislodged from office ; that the guarantee subsidy bonds were then issued in a rush ; and that soon afterward a prominent member of the Government bought real estate for which as payment he gave nearly £10,000 of the first mortgage bonds of the Northern Railway.
Many other of the railways were so badly constructed that after the contractors had turned them over to the owning companies, great additional expenditures were required to put them even in the most passable shape. And this notwithstanding the fact that public subsidies often were enough to pay for one-half or more of the entire cost of construction.
An example of this fact was the case of the Cobourg and Peterboro Railway, the contractor for which was the ubiquitous Samuel Zimmerman. Although this road was only 30 miles long, the cost amounted to nearly $1,000,000, of which sum municipalities contributed $500,000. The road-bed was badly deficient, and the equipment not much better. With a celebration the road was finally opened for traffic, but hardly had the winter of 1853 set in when the railways bridge, three miles long across Rice Lake, was crushed in and splintered by the ice. An examination revealed that the work had been scamped ; the piles had not been sufficiently driven or properly stayed. Costly repair work had to be done before the road was tolerably fit for travel.26
Grafting was general ; and one serious scandal after another now developing revealed that the railway promoters resorted to any means to secure funds from the public treasury.
The Great Southern Railway Corruption
By what methods railway contracts, municipal loans and the control of railways were often secured was evidenced in the disclosures, in 1857, concerning the Great Southern Railway.
The Great Southern Railway project was a scheme to form a railway running from the Niagara River to the Detroit and St. Clair rivers. It was to traverse the rich agricultural belt of southern Ontario. This railway, as planned, was to be an amalgamation of two railroads, one chartered to run in the west of Ontario, the other in the eastern section.
The eastern part of this ambitious project was the Woodstock and Lake Erie Railway, chartered in 1848 to be completed within ten years. Originally Hincks was one of its promoters, but he later withdrew. So notorious was the general rascality that attended this railways progress, or rather lack of progress, that in 1857 a Select Committee of the Legislative Assembly was appointed to investigate the whole Great Southern scheme.
This committee reported, on May 20, 1857, these facts : That in 1852, Samuel Zimmerman made a bargain with the railways directors to supply two-thirds of the funds with which to construct and operate the road. In exchange, he was to get one-third in bonds, the same amount in stock and the same in cash from the Company.
A $50,000 Bribe for a Contract
How did Zimmerman manage to get this contract ? The Select Legislative Committee reported that for his influence and exertions in obtaining the contract for Zimmerman and Company, Henry de Blaquiere, one of the directors, is distinctly proved to have received a bribe of no less a sum than $50,000 under this contract in which the said De Blaquiere admits he was a secret partner to the extent of one-half of the profits.27
The directors of the Woodstock and Lake Erie Railway issued assurances that the £250,000 of the railways stock had all been paid up. They engaged two agents, one of whom was a clergyman, to carry these tidings to the various municipalities along the line, and prevail upon those municipalities to invest in the railway in the form of loan subsidies. The people of those municipalities were gravely assured that there could be no possible failure to pay back the municipal loans ; the Company, they were told, was backed by men of undoubted good faith. The municipalities in question were further assured that the loans asked for would reach only one-half of the cost of construction.
Fraud and Bribery
The exchequers of various municipalities were opened up, and out came loans to the Woodstock and Lake Erie Railway totaling £145,000 ($725,000). As a matter of fact, the Select Committee reported, the representations so made by the Companys agents were all false and fraudulent. Little of the stock had been paid up ; and after they obtained the municipal loans, the Companys directors, without letting the municipalities know the fact, changed the contract from a cash to a credit basis.
The Township of Windham was one of the municipalities induced to give a loan of $100,000. How came it that this obscure, rustic place was so extremely generous ? The Reeve (or Mayor) of Windham was ostentatiously doubtful of the ability of so small a community to stand so large a loan. After the loan had been voted, it became his duty, the Select Committee reported,. to hand over to the Railway Company, under certain conditions, the necessary papers to enable them to obtain Government debentures, under the by-law.
To do this, the Reeve appeared to have what he called ` scruples. . . Means were soon found to remove them. A subcontractor was sent to him with an envelope containing $500 which was quietly handed to him. The scruples were removed, and twenty minutes after, the necessary papers were in the hands of the Secretary of the Company ; subsequently the messenger carried the Reeve another envelope containing an additional $500, one hundred of which he deducted for his own services for negotiating the transaction, and the balance of which he handed to the Reeve as payment in full for the removal of his scruples.28
Plunder on Construction Work
The Woodstock and Lake Erie Companys directors now made some appearance of construction work to distract attention from their frauds. In 1854 the contractors suspended work. Up to this time the subcontractors had received £87,000 (whether English or Provincial currency is not stated), yet they had done only about £32,000 worth of work.29 Some of the directors boldly grafted large sums. They caused the railway to be surveyed over much of their own land which they had bought cheap or got for nothing, and they now made the municipalities pay them heavily for it. For a worn-out brick yard the Company paid £5,000.30
Something had to be done in Parliament and speedily, or else the charter would be automatically forfeited by the time limit expiring. A bill was lobbied through, granting an extension of time.
Mr. Buchanan Gives a $100,000 Bribe
It was at this point that a rich Hamilton merchant of wide commercial interests, namely, Isaac Buchanan, came forward. Buchanan was a noted politician, serving for a time as member of the Canadian Parliament and as President of the Executive Council. Presently he announced that he had control of the Woodstock and Lake Erie Railway. The Select Legislative Committee described the mode he used in getting control.
It simply consisted, that Committee reported, in the giving of a direct bribe of $100,000 to obtain the removal of three of the Directors, and the substitution in their stead of three of his own nominees, he having previously succeeded in securing without purchase the remaining four to accede to and aid him in carrying out his plans for the transference of the charter to a rival company.31
For a while there was a life and death struggle between Buchanan and Zimmerman, and litigation a plenty, but they united their interests, and after Zimmermans death the interests of both were represented by the new board of directors consisting of such high social lights as Buchanan, Thomas G. Ridout, James C. Street and others.
Buchanan now had the eastern line for the projected Great Southern Railway. He at once set about getting the western. There was a chartered railway called the Amherstburg and St. Thomas Railway promoted by members of Parliament in 1852. The value of its charter consisted in supplying an extension of the Woodstock and Lake Erie Railway westward.
According to Buchanans story before the Select Committee, a group of American capitalists of the New York Central Railway and the Michigan Central had sought to get control of a southern railway through Ontario, and that if they were successful, they would seriously compete with the Great Western Railway in which he, Buchanan, was heavily interested. Buchanan insisted that in his aim to thwart those American capitalists, he had the support of all of the Great Western Railway Companys directors except Brydges. On the other hand, it was alleged that Buchanans sole object was to hold up the Great Western, and force it to buy the Great Southern project from himself at an exorbitant price.
How Buchanan acquired control of the Amherstburg and St. Thomas Railway scheme was described by the Select Legislative Committee.
Peculiarly Humiliating and Painful
While devising means to this end, the Committee reported, a Mr. Van Voorhis comes most opportunely to his [Buchanans] relief with a suggestion made by Mr. Hodge that for a consideration the coveted object could be obtained. Mr. Buchanan, after a little prudent consideration, determined as to the sum to be offered, and the proposition of Mr. Buchanan [sic] being reduced to writing, Mr. Buchanan accepts. The negotiations being concluded, Mr. De Blaquiere, who up to this point appears only in the background, steps in, receives $100,000, and then with his two brother directors withdraws and allows Mr. Buchanan and his two nominees to take their places ; Mr. Van Voorhis as the negotiator between the two parties receiving for his services an undertaking that he shall have a preference contract of 35 miles of road. Whether or not others shared in the profits of this shameless transaction, your Committee have not been able certainly to ascertain.32
The next move was to get a Bill passed by Parliament amalgamating the Woodstock and Lake Erie Railway and the Amherstburg and St. Thomas Railway.
. . . That gross wrong, the Select Committee concluded its report, has been practiced by parties officially and in otherwise in connection with the said Company, is fully established, and that those concerned in the perpetration of such wrong are individuals who have been hitherto occupying high and honorable positions in society and public stations, is a circumstance of a peculiarly humiliating and painful character.
But the Select Committees report did not reveal all the prevailing corruption. More was disclosed in the evidence itself and in the Parliamentary debates. One member of Parliament, it appeared, stood out for a considerable bribe in connection with Great Southern Railway charter matters, nor was he the only member implicated in the disclosures.33
The Great Western Eulogizes Itself
Buchanan had testified, as we have seen, that his motive was to get for the Great Western Railway the control of the Southern Railroad from the Niagara to the Detroit River. The Great Western Railway Company, he said, having done its best to prevent the passage of the charter, had wanted to get control of the competitive line to obviate the necessity of double tracking its own line. The Great Western Railway Company repudiated this alleged object, and more than intimated that a hold-up was attempted upon it.
With a great air of virtue, the directors of the Great Western Railway now came forward with a jibe at their projected competitor, the Great Southern Railway.
They reported in 1857 that during the last twelve months considerable discussion has arisen in regard to the projected Southern Line through Canada, which last summer [was] attempted to be forced upon this Company. In the last session of the Provincial Legislature many disgraceful disclosures were made as to the past history of that scheme arising out of the rival claims of certain parties to the control of the line.
These disclosures showing an extent of bribery and dishonesty which have rarely been paralleled in the history of any joint stock undertaking . . . cannot fail to increase the satisfaction of the shareholders that this Company was preserved from any connection with the scheme.34
When this report was made the Great Western Railway was headed partly by British capitalists and partly by Canadian politicians : Robert Gill of England was its president ; John Young of Hamilton, Ont., its vice-president, and its two secretaries were British and Canadian.
For the time, the Great Southern Railway scheme had to be suspended ; the operations of its promoters caused such a wide scandal that legislators discreetly refrained from sanctioning further powers. But it was subsequently revived as the Canada Southern Railway, and became an accomplished fact. The control was later acquired by the Vanderbilts, the American railway magnates owning the New York Central Railway, the Michigan Central and other lines. The Canada Southern Railway later was owned and controlled by the Vanderbilts, J.P. Morgan, William Rockefeller and other American magnates.
It is a noteworthy fact that at the very time Buchanan was doing his bribery, Commodore Cornelius Vanderbilt, the founder of the great Vanderbilt fortune, was amassing his original millions by a huge system of commercial blackmail on competing steamship lines, the exact facts as to which (citing official documents and court records), are related specifically in the History of the Great American Fortunes.
Some More Unpleasant Disclosures
But the foregoing were by no means the only railway scandals developing.
Reports and charges, exceedingly embarrassing to certain government functionaries, were current in 1858 ; and a Select Standing Committee of Public Accounts was ordered to investigate.
The chairman of this committee was A.T. Galt. This gentleman had been, as we have seen, the Canadian executive of the British American Land Company, the affairs of which he had converted into a highly profitable state. He had been a prime owner of the St. Lawrence and Atlantic Railway, which, as we have seen, became part of the Grand Trunk Railway system. He was, also, as previously noted, a promoter of the Grand Trunk Railway of Canada, and a Grand Trunk contractor. Another member of the Committee was Hon. William Cayley, member of Parliament. As Inspector-General (Finance Minister), one of Cayleys functions was to borrow money for the Provincial debts.
Examined on June 8, 1858, Cayley reluctantly gave this testimony : That he had advanced £10,000 of Government money to the Cobourg and Peterboro Railway Company ; that he was not a stockholder, but that at one time in 1856 he held bonds in the railway, and that the loan to the Company was under negotiation two or three months previously. The president and lessee of this railway, Cayley testified, was DArcy Boulton, with whom he was connected by marriage. (Boulton, it may be interpolated, had been Mayor of Cobourg in 1853, and later, as a member of Parliament had put an Act through that body chartering the building of this railway ; he later became president of the Midland Railway.) The interrogator was curious to know whether Boulton, as lessee of the Cobourg and Peterboro Railway, had paid the rent in depreciated bonds, and whether Cayley had supplied him with the bonds ? Cayley admitted that he had sold some bonds between £4,000 and £5,000 worth of them to Boulton, for which Boulton had paid him chiefly in land ; Boultons uncle was the Hon. Peter Robinson, Commissioner of Crown Lands.
More transactions were then uncovered. Cayley testified that out of the sums that the Grand Trunk Railway had received from the Government under the specific Act of 1856, that Railway Company had advanced large sums to other railway companies having no legal connection with it, and apparently separate roads. To the Port Hope and Lindsay Railway (later the Midland Railway), £13,000 had been advanced, and similar large advances were made to other railways, yet Cayleys published accounts contained no reference to these transactions in which public funds were freely used.35In a written statement handed in to the Committee, on June 10, 1858, Cayley stated that the advances made by him to certain railway companies were sanctioned by an Order-in-Council which provided that the securities given in exchange were to be reported and passed upon by Solicitor-General Smith of Upper Canada, acting for the Government. Questioning brought out the fact that at that identical time Smith received a fee of £100 of railway company funds for professional services.36 Cayley gave much other illuminating testimony, not the least interesting of which was his statement that the president of the Grand Trunk Railway Company was his colleague, the Receiver-General of the Province.37
It was in this very year, and only two months after giving this testimony, that Cayley was influential in having the Bank of Canada, a private institution, incorporated by Act of Parliament, and he himself headed the list of incorporators.
Funds Lifted Out of the Public Treasury
Perhaps, however, the most incisive testimony was that, on June 14, 1858, of Auditor-General John Langton :
Q. 379. was £16,083, 6s., 8d., drawn directly from the public chest in the year 1857, and lent to the Cobourg and Peterboro Railway Company ?
A. It was.
Q. 380. Had Parliament given any authority for applying the Provincial money in such a manner ?
A. Not that I am aware of.
Q. 385. was £160,000 drawn directly from the public chest in the year 1857, and lent to the Grand Trunk Railway Company ?
A. It was.
Q. 386. Had Parliament given any authority for applying the Provincial money in such a manner ?
A. I am not aware that it had.
Q. 387. was the money restored to the chest in 1857 ?
It was, however, later returned, Langton stated, as also was that advanced to the Cobourg and Peterboro Railway Company restorations no doubt opportunely stimulated by the investigating committees inquisition.
Loans Turn Out To Be Mostly Worthless
Among divers other findings, the Select Standing Committee of Public Accounts reported that of £35,538 thus loaned to incorporated companies, little or none would ever be recovered, as the security was worthless. The Quebec Turnpike Trust was in possession of £33,882 of public money and had never paid one shilling of interest. The Province of Canada had paid £88,274 on bonds of the Ontario, Simcoe and Huron Railway, without adequate security. The Great Western Railway Company, although in receipt of large revenues ; had paid no interest to the Government on advances, and so the findings ran on, telling in official terminology of the methods by which the public funds had been indiscriminately placed at the disposal of certain railways and other favored companies. All of these corporations, it need hardly be said, were promoted, largely owned and directed by prominent Canadian politicians.
The fact was also established that £500,000 of Government debentures had been sold in England at 99¼ when, at the same time, the quotation prices of the stock exchange for those bonds were 105 to 107. This transaction caused a large loss to the Province of Canada. The additional fact was brought out that a certain Parliamentary supporter of the Government sold to the Government £20,000 of Hamilton debenture bonds at 97¼, although in the market their quotation was only 80 ; by this operation the Government favorite pocketed a profit of $17,500.
A Defeated Resolution
Now came a much-commented upon action on the part of a majority of the Public Accounts Committee. At a meeting on March 22, 1859, one of its members, Foley, offered a resolution condemning the practice on the part of Government functionaries of overriding the law by granting to individuals, on various pretenses, large sums of money, not only unauthorized by law but in direct contravention of law. This resolution was promptly consigned to limbo by a vote of 6 to 3. One of those voting against it was A.T. Galt.39
Without mentioning this circumstance of the resolution, Dent, however, inadvertently gives the explanation. It had come to light, he narrates, that in the year 1859, a sum of $100,000 had been advanced from the public chest by Mr. Galt, then Minister of Finance in the Cartier-Macdonald Government,40 to redeem bonds given by the City of Montreal to the St. Lawrence and Atlantic Railway Company. By an arrangement entered into after their issue, these bonds had been made redeemable by the Grand Trunk, to which Company the Provincial advance had really been made ; and this had been done without the sanction or knowledge of Parliament.41
As we have seen, A.T. Galt was a chief promoter of the St. Lawrence and Atlantic Railway and the Grand Trunk Railway of Canada. He was also, as previously narrated, a member of a Grand Trunk Railway Construction Company. And it may be said here that he also was concerned in other enterprises. He was an original promoter, in 1855, of the Eastern Townships Bank. He greatly assisted in founding the textile mills at Sherbrooke. He became, in 1869, a leading promoter of the Sherbrooke, Eastern Townships and Kennebec Railway, chartered in that year.42 Subsequently, he became a proprietor of the coal lands at Lethbridge, Alberta, converting them from public property into his personal property, and becoming at once a coal magnate of the first rank. Galt also became president of the Canada Guarantee Company a large corporation.43
The disclosures already made regarding the methods of the Grand Trunk and other railroad promoters were serious enough. But very soon came another embarrassing scandal.
Mail Subsidies and Ministries
On August 29, 1863, the Montreal Gazette published a story to the effect that an attempt had been made by Prime Minister John Sandfield Macdonald, aided by several of his colleagues, to bribe the heads of the Grand Trunk Railway in Canada to employ the Companys influence on behalf of the ministerial party in the general elections of that year. The day following the announcement of the alleged plot, the Hon. James Ferrier and C.J. Brydges published letters corroborating several points of the alleged revelations, and agreeing on the story that on the evening of the day preceding the nomination of the Hon. John Young, the ministerial candidate opposing the Hon. Thomas DArcy McGee, Macdonald arranged to meet Ferrier at his lodgings in Montreal to discuss the long-pending settlement of the Grand Trunk claim for carriage of the Canadian mails. Ferrier claimed that Macdonald distinctly promised that he would make the rate $150 per mile, provided the Grand Trunk would throw the weight of its influence in the then pending elections on the side of the Government. Ferriers telegrams to Brydges, the general manager of the railway, bore out his statement of the proposal made by Premier Macdonald.
Ferrier and Brydges both professed that they had replied to Macdonald that they would not depart from their policy of absolute neutrality in politics, and they complained of the Governments broken promises. It was claimed that because the officials of the railway would not throw their influence in favor of the Government in the elections that the administration had adopted an Order-in-Council making the postal subsidy to the Grand Trunk Railway, $100 instead of the $150 promised. Friends of the Government claimed, however, that the Grand Trunk was a party to a conspiracy with the Opposition for the overthrow of the Administration. On the day following the publication of the alleged scandal, the discussion of the matter occupied the whole attention of the House during both afternoon and evening sessions.
Grand Trunks Mail Subsidy
The investigation following this particular scandal dealt with the methods by which the Grand Trunk directors, after already getting a large mail subsidy, sought to hold up the Government for an extraordinarily larger sum ; at the time that this effort was made, these directors, in fact, themselves largely composed the very personnel of the Government Ministers and Parliamentary leaders at one and the same time.
The facts came out in 1864, after a new Administration had come in, when Postmaster-General Oliver Mowatt reported in response to an order from Parliament :
That shortly after assuming control of the Atlantic and St. Lawrence Railway, the directors of the Grand Trunk Railway, on August 17, 1853, passed a resolution greatly increasing their charge for carrying mails from about $25 a mile to $110 a mile per annum.
When this resolution was passed, Mowatts report proceeded, it appears from the Minute made at the time, that the following directors were present : The Honorable John Ross in the Chair ; Hon. James Morris, Hon. F. Hincks, Hon. M. Cameron, Hon. Peter McGill, E.F. Whitmore, Esq., W.H. Ponton, Esq., Col. Tache and Captain Rhodes.44 The Honorable James Morris had been Postmaster General until the 16th of August, 1853, and the Honorable M. Cameron became Postmaster-General and held the office on the 17th of August, the very day of the meeting. The verbal intimation which the Postmaster-General received, by thus being present, seems to have been the only one given him. No trace of any written communication has been found in any of the public departments, nor so far as appears, among the records of the Company.
An Agreement of Which There Was No Evidence
Postmaster-General Mowatt, in his terse, dry way pointed out the nature of the process. Here were some leading chiefs of the Government, one of whom succeeded another as Postmaster-General (the very official having jurisdiction over mail subsidies). They met as directors, government or other, of the Grand Trunk Railway, and resolved that they were willing to accept $110 a mile. Then they solemnly dispersed and immediately pretended to resume their separate functions as Cabinet Ministers and legislators.
The undersigned, went on Mowatts report, perceives that the Honorable Mr. Galt, when Finance Minister, speaks of $110 as `the rate first agreed upon by the Government. But the undersigned has failed to discover any evidence of any such agreement. However, the Company from the first, sent in their accounts at $110 a mile, and continued doing so until April, 1861.
The raid was considered much too audacious. Other Government officials raised a tempest. Sidney Smith, the Postmaster-General, in 1858, denounced the $110 rate demanded by the Grand Trunk and the $100 rate demanded by the Great Western Railway as grossly excessive, and a Committee of the Executive Council, June 18, 1858, recommended the payment of much less than half of the demanded sums as fully adequate.
The Grand Trunks High Influence
This report, Mowatt further proceeded, was approved by his Excellency in Council, on the 18th of September, 1858. Hon. Mr. Cartier, solicitor for the Grand Trunk Company, was at this time the Canadian Premier, and the Hon. Mr. Ross, then president of the Company, was at the same time president of the Executive Council. Mr. Watkin, who afterward became president of the Company, in an official letter to the Provincial Secretary, of 29th Nov., 1862, states that Mr. Ross, at the time the Order-in-Council of 1858 was submitted, protested against the rate fixed therein as entirely inadequate, though he did not formally oppose the proposition, being (as Mr. Watkin curiously adds) `unfortunately for the Grand Trunk Company, a member of the then Government.
But the Government with all its Grand Trunk influences established did allow a rate of $70 a mile, and this rate was continued after the overthrow, in 1862, of the Cartier Ministry. No great trouble would have resulted had not the Grand Trunk Railway Company, in 1862, suddenly claimed an enormous amount in some cases $300 to $850 a mile. Mowatt incorporated in his report a copy of the Companys own prospectus showing the large number of Government officials on its list of directors and shareholders, and commented, But it is a remarkable fact that while so enormous an amount is now claimed for postal services, and while this prospectus constitutes so important a part of the argument of the Company in support of the claim, postal services are not once alluded to in the prospectus as an item from which any part of the probable revenue was to be expected.45 Mowatt succeeded in having the rate fixed at $60 a mile ; the Grand Trunks claims were making such a decided scandal, that the pushers considered it prudent to drop their full demands.
Northern Railway Loans
It is now necessary to turn again to the Northern Railway, running from Toronto to Collingwood. We have already related the details of the jobbery at the inception of this railway in which Prime Minister Hincks and Mayor Bowes of Toronto were secret partners.
At the same time, in 1853-1854, when, in order to get railway legislation Prime Minister Hincks approval first had to be obtained, further legislation was enacted by which the Government of the Province of Canada advanced to the Northern Railway Company £475,000 sterling, constituting a first lien upon the road. But the Company did not pay anything to the Government of either principal or interest. The Company then underwent a metamorphosis of reorganization. In 1859 an Order-in-Council was issued, confirmed by an Act in 1860, granting the bonded debt of the Company priority both in payment of interest and security over the Government lien, excepting about only £9,000 of mortgage bonds. By this arrangement the Government received the scanty comfort of also becoming possessor of a £50,000 second preference bond in part payment of interest then due on the Government lien.
As law now stood, the Company did not have to meet the payment on the £475,000 of the Government money until it had paid all of the charges on the £533,900 of its own outstanding bonds, the holders of which were now in possession of the road. Eight years passed ; and then, in 1868, they were allowed to issue £150,000 sterling of more bonds, which also were allowed priority over the Government lien.
These bonds were then sold or distributed by the Company ; and the practical effect of this astute arrangement was that, to enable the Company to obtain about £30,000 in cash, a permanent annual charge of £6,000 sterling was placed ahead of the Government lien.
Subtle Financial Transactions.
Then came still another financial twisting, when, in 1872, the Northern Railway leased the Northern Extension Railway a lease confirmed by Act of Parliament. The involved manner in which this lease was arranged, made any payment on the Government lien still more remote.
An examination of this lease, reported the Select Parliamentary Committee, disclosed the fact that arrangements were made whereby the interest on debentures to be issued by the Northern Extension was to be paid by the Northern Railway, and charged in the nature of a rental upon the earnings of the line of railway of the lessees, and to be recognized in the working expenses thereof. As it appears that £177,600 of debentures and improvement bonds were issued, the effect of this Act was to place the interest on this amount, being about £l0,000 sterling per annum, ahead not only of the Government lien, but also of all of the Northern Railway preference bonds. . . .46
Four years later the Northern Railway owners were allowed to extinguish their responsibility for the £475,000 Government lien upon terms so favorable to them that they themselves must have been astonished at their great success. These terms were the payment of £l00,000 sterling, together with £2,000 sterling interest, and £13,500 sterling as arrears of interest on the second preference bonds making £115,500 sterling in all. This settlement left the Government still owner of £50,000 sterling of second preference bonds, and also entitled to £50,000 sterling for third preference bonds and interest.47
The Prime Minister Gets a Testimonial
The self-evident loss to the Government was extensive. By what persuasive means were some of these various ends brought about ? What were the specific influences brought to bear upon members of the Government ? The nature of some of those methods were revealed by the report of the Select Parliamentary Investigating Committee, in 1876-1877, which reported :
That on November 12, 1869, Sir John Macdonald (Prime sinister of Canada from 1867-1873) made a draft for $500 on F.W. Cumberland, General Manager of the Northern Railway Company, which draft was accepted at maturity by Cumberland and paid out of the Northern Railway funds ; that on November 18, 1869, another such draft drawn by Macdonald on Cumberland was similarly paid ; and that the proceeds were used to defray the election expenses of Sir Francis Hincks, who at that very time was a member of the Canadian government.
The Committee further reported that Cumberland, Hon. John Ross and Hon. John B. Robinson subscribed to a testimonial to Macdonald ; that Cumberland and Ross each gave $1,000, and Robinson $500 ; and that on January 14, 1871, a check for $2,500 was paid to the Hon. D.L. Macpherson, treasurer of the fund, who called at the Companys office to get the check ; and that this check originally entered as an asset on the Companys books was later changed to municipal bonuses and Government subsidies. Macdonald and Macpherson denied that they knew that the Company contributed the to testimonial.
The Committee itemized further sums that it classified as improperly paid out of the Northern Railway Companys funds sums that defrayed the election expenses of certain stated politicians, one of whom was Robinson, president of the Northern Railway Company. These sums were entered on the Companys books as follows : One-third to Contingencies, one-third to Parliamentary Expenses, and one third to Legal Expenses. The committee reported various other findings, one of which was that money had been paid out for stock in a certain Toronto newspaper, at or about presumably the very time that Robinson had so engineered matters as to get $200,000 from the City of Toronto.48
The Corrupt System Described
Corruption taints the majority of railway enterprises from their inception to completion, wrote David Mills, a member of the Dominion Parliament, and later Dominion Minister of the Interior. Charters are sought, not infrequently, for the purposes of speculation. Sometimes they are used to blackmail existing railway lines. However much a railroad is needed, a charter is seldom obtained without difficulty, and stock is bestowed for Parliamentary support. The names of well-known railway men are sought to give credit to the projected enterprise, a number of shares are tendered them for their ` eminent services, and they are seldom declined.
When a railway scheme is finally launched, it finds a large number of friends engineers and professional contractors, the owners of rolling mills, and the builders of cars and locomotives. The getters of land grants, and the traders in railway stocks, all come to its aid, and it may be, experience its bounty. These constitute the grand army of a private railway enterprise.
Besides these, there is a numerous band of camp followers, who expect in a variety of ways to reap where they have not sown, but about whose special services nothing need be said. It is this numerous host of allies and followers which `can kill or keep alive a railway project, and because they have this power, must be paid, that add to the cost of every rival railway undertaking. In his article Mills but stated a further well-known fact when he wrote : In order to pay interest upon bonds or dividends upon stocks, a road is allowed to deteriorate. Then come accidents, in which scores of passengers are mangled or scalded.49
1 Eighty Years Progress of British North America, 1781 to 1861, pp. 199-200.
2 Legislative Council Sessional Papers, Vol. 13, First Sess., Fifth Parl., 1854-1855, Appendix A.A.A.A., pp. 25-26. (Although this document is indexed, the pages are not numbered.)
3 See Legislative Council Sessional Papers, Vol. 13, First Sess., Fifth Parl., 1854-1855, Appendix A.A.A.A., giving the report and incorporating the testimony. So useful a document was this report, it may be parenthetically explained, that Sir Francis Hincks, in his Reminiscences, published thirty years later, fell back upon it as his vindication notwithstanding the fact that certain other transactions (which are described in this chapter), were admitted both by the committee and by Hincks himself.
4 See Legislative Council Sessional Papers, etc., 1854-1855, Vol. 13, Appendix A.A.A.A. One of the first witnesses called, Moses H. Purley, agent for Crown Lands in New Brunswick, testified (in replying to a leading question), that he had known a member of the Executive Council to buy at special sales property which that very member in his capacity of Cabinet Minister had expressly ordered to be sold at a special price.
5 Journal of the Legislative Assembly, Prov. of Canada, 1855, Vol. XIII, Part II, pp. 1030-1031.
6 Ibid. The returns to Parliament in that very year showed that Hincks, McGill, William Allan, John Ross and other members of Parliament or Government were stockholders in either the Grand Trunk or in railways amalgamated with it. See Journals of the Legislative Assembly, 1854-1855, Appendix F.F., Vol. XIII.
7 Keefer, Eighty Years Progress of British North America, 1781 to 1861, p. 208.
8 See Legislative Council Sess. Papers, etc., Vol. 13, 1854-1855 Appendix A.A.A.A. See also, Hincks Reminiscences, p. 347.
9 Keefer, p. 209. At this identical time, says Keefer, the contractors wielding a gigantic scheme which traversed every county in the Province, virtually controlled the government and the legislature while the expenditure continued. Keefer might have added, with equal accuracy, that they controlled certain influential newspapers, also, and through them a certain part of what was called public opinion.
10 Ibid., p. 210. Keefer estimated in 1861 that in addition to the $1,000,000 expended to put the St. Lawrence and Atlantic Railway in shape, the Grand Trunk had to spend $6,000,000 on its main line to make up deficiencies in the carrying out of the contract.
11 A True Captain of Industry, Article on Brassey in the Canadian Monthly and National Review, issue of October, 1872, p. 317.
12 High members of the Government saw no impropriety in making fortunes out of construction of railroads. The Hon. L.H. Holton, connected with the firm of Gzowski and Co., which built the western part of the Grand Trunk, was at the same time a member of Parliament, and a director of the Grand Trunk, as also a bank president and director. He later was a Cabinet Minister in various Administrations, and twice Minister of Finance. He remained in Parliament until his death in 1880.
13 Appendix F.F., Appendix No. 9, Vol. XIII, Appendices to Journals of the Legislative Assembly, etc., 1854-1855.
14 Reminiscences of a Canadian Pioneer, p. 281.
15 Ibid., p. 290.
16 Eighty Years Progress of British North America, etc., pp. 222-223.
17 Ibid., p. 224.
18 Ibid., p. 224. This catastrophe happened on March 12, 1857. Keefer could have added that he wrote with authority ; he was, in fact, one of the examining civil engineers reporting on the accident. Although planned originally to be built of oak timber, the bridge was constructed of pine, and was in a bad condition. After one theory following another put out by the Company to explain the cause of the accident had been discarded, the Great Western Railway Company declared that Providence was responsible !
19 See Sessional Paper No. 61, Sess. Papers, Vol. I, No. 9, 1867-1868, p. 5.
20 See Sessional Paper No. 61, Sessional Papers, Dom. Parl., 1867-1868, Vol. I, No. 9, p. 17.
21 Sessional Paper No. 7, Sess. Papers, Dom. Parl, 1869, Vol. II, No. 3. Roses communication, June 9, 1868, to Thomas Swinyard, president of the Great Western Railway Co. Rose was a member of a prominent European and New York banking firm.
22 Report of Commissioners Appointed to Inquire into a Series of Accidents on the Great Western Railway, etc., Leg. Council Sess. Papers, Vol. 13, 1854-1855. Appendix Y.Y. No doubt the conditions as reported by this Commission were true enough, yet it should be noted that the Commission was regarded as subject to Grand Trunk influences. It was a common practice for legislative committees, one or more of the members of which were interested in a particular railway, to disclose the truth as to the workings of a competitive railway, with the object of damaging its reputation and the market value of its stock.
23 See the itemized table in Eighty Years of Progress in British North America, etc., pp. 216-217.
24 Keefer estimated that by 1861 the municipal railway loans in Ontario amounted to $5,594,000 and those in the Province of Quebec to $925,940. There was also about $3,000,000 more contributed by municipalities which sum was not entered in the railway fund.Ibid., p. 215.
25 See Legislative Council Sessional Papers, First Session, Fifth Part., 1854-1855, Vol. XIII, Appendix A.A.A.A. The full transcript of the proceedings in the Court of Chancery is embodied in this document. See also, Thompsons Reminiscences of a Canadian Pioneer, p. 283. Thompson was Secretary of the Toronto and Guelph Railway Company until it was absorbed by the Grand Trunk Railway in 1853. Municipal officials of the various other cities were likewise stockholders in different railway companies. That after the exposure of such a transaction Bowes should have been elected to Parliament was characteristic of the elections of the times. The annals are full of election scandals.
26 Trouts The Railways o f Canada, a short and laudatory work, published in 1871, pp. 117-118.
27 The full report and testimony are published in Journals of the Legislative Assembly, Province of Canada, 1857, Appendices to the 15th Vol., Appendix No. 6.
28 Journals of the Legislative Assembly, etc., 1857, Appendix No. 6 to the 15th Vol. (The pages of this document are not numbered.)
32 Ibid. The testimony upon which the committee based its findings was extremely specific and voluminous.
33 The president of the Amherstburg and St. Thomas Railway Company in 1857 was Arthur Rankin, a member of the Parliament of the Province of Canada, and the Companys vice-president was G. Macbeth, another member of Parliament. Rankin made a claim for £25,000 from Zimmermans estate for certain services rendered, presumably by him (Rankin) as a member of the Railway Committee of the House See Journals of the Legislative Assembly, 1857, Appendices to 15th Vol., Appendix No. 6.
34 Trouts Railways of Canada, 1871, pp. 88-89.
35 Appendix to the 16th Vol., Journals of the Legislative Assembly of Canada, 1858, Vol. XVI, No. 4, p. H., etc. Bank funds were likewise profusely used by the railway promoters. T.G. Ridout, Cashier of the Bank of Upper Canada, testified that that bank had advanced, on the recommendation and authority of the Government, nearly £60,000 to the promoters of the Cobourg and Peterboro Railway and the Ottawa and Prescott Railway. If, said Ridout, these two companies should fail to give the Grand Trunk Railway Company satisfactory security for the repayment of the money, the bank would have a fair claim against the Government.
Some years later the Bank of Upper Canada failed in a large crash. Its funds had been absorbed to an immense extent by advances to land speculators, politicians, adventurers and men of that gentlemanly type who, though in business, scorn to soil their fingers with its details.
36 Ibid., Questions Nos. 333 and 334.
37 Ibid., Question No. 342. Cayley was, and became still more so, a prominent corporation capitalist. Twenty years later we find him a director of the Dominion Telegraph Company of which Swinyard was Managing Director.
38 Ibid. That such instructive facts were brought out was due to unsparing and persistent questioning by George Brown, a member of the Committee.
39 See Appendix to 17th Vol., Journals of the Legislative Assembly, Prov. of Canada, Vol. 17, No. 2, Appendix No. 5.
40 Says Pope : The Hon. Mr. Ross, Speaker of the Legislative Council and a member of the Government, had been solicitor for the railway, and was, a shareholder in the road, as was Mr. Hincks. Nor was the Grand Trunk without influence on the left of the Speaker. Mr. Holton was largely interested, as was Mr. Galt. Indeed, that gentleman was supposed by some members of the Opposition to be so closely identified with the railway, that when, in 1858, Mr. Cartier announced the personnel of his Ministry, W.L. Mackenzie . . . shouted, at mention of Mr. Galts name, Grand Trunk Jobber ! . . . Joseph Popes Sir John Macdonald, Prime Minister of Canada, Vol. I, pp. 110-111. Galt was, in fact (as we have seen) a member of the contracting firm of Gzowski and Company, which constructed the Grand Trunks line from Toronto to Sarnia.
41 Deuts The Last Forty Years : Canada Since the Union of 1841, Vol. II, p. 438. Dent proceeds to tell how on June 14, 1864, Parliament passed a resolution (by a vote of 6o to 58) censuring this transaction, although fixing upon Galt only a culpable negligence in keeping the Provincial Accounts. The passage of this resolution caused the resignation of the Ministry.
42 See Statutes of the Province of Quebec, 1869, pp. 242-243.
43 See, Monetary Times, Feb. 15, 1878, p. 967.
44 As has already been noted, Ross, Morris, Hincks, Cameron and McGill were all at various times personally interested as stockholders in the Grand Trunk Railway or in various corporations the charters of which they had promoted through Parliament.
45 For Postmaster-General Mowatts full report see Sess. Paper No. 28, Vol. III, 2nd Sess. of the 8th Parl. of the Province of Canada, Sess. 1864. In a private letter to L.H. Holton, February 19, 1862, George Brown, editor of the Toronto Globe, and a member of Parliament, wrote that, Mr. Brydges is regularly installed in the Grand Trunk. He is trying to accomplish an increased subsidy by private arrangement with the members. See Life and Speeches of George Brown, p. 198.
46 Report of Cyril Archibald, Chairman of the Select Committee, Dom. House of Commons, Appendix to Journal, etc., Vol. XI, 1877, Appendix No. 5, Sess. Paper No. 10, p. iv.
48 Ibid., p. v, etc. In the Committees estimation, the impropriety of these contributions to members of the Government, etc., arose from the fact that the funds thus given were applicable to the payment of the Government lien.
49 Railway Reform The Canadian Pacific Railway, by David Mills, M.P., in the Canadian Monthly and National Review, Nov., 1872, pp. 438-439.